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What is a dividend?

Modified on: Mon, 6 Jul, 2015 at 12:50 PM

A dividend (a type of corporate action**) is a payment made by a company to its shareholders, usually as a distribution of profits.

Distribution to shareholders can be in cash (usually a deposit into a shareholder account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.

Every time a company pays a dividend, it must be officially declared by the board of directors.

Public companies usually pay dividends on a fixed schedule (generally issued half-yearly for cash dividends), but may occasionally decide to pay a one-off special dividend at any time.

Dividends are expressed as "cents per share."

NOTE:

** A dividend is a specific type of corporate action. A corporate action is an event initiated by a publicly-traded company that will affect its shareholders. Some corporate actions, such as a dividend may have a direct financial impact on the shareholders.

Other corporate actions, such as stock split, may have an indirect impact, as the increased liquidity of shares may cause the price of the stock to rise. Some corporate actions, such as name change, have no direct financial impact on the shareholders.